TransUnion: Mortgage Delinquencies Plummeted in Second Quarter

The national mortgage delinquency rate (the rate of borrowers 60 or more days past due) decreased for the sixth consecutive quarter, dropping to 5.82 percent at the end of the second quarter in 2011 according to a quarterly analysis of credit-active U.S. consumers by TransUnion.

Although mortgage delinquencies were expected to continue to drop, the Q2 2011 TransUnion data released recently shows mortgage delinquency rates improved on a quarterly basis by 5.98 percent, more than any time since the recession officially ended two years ago.

“While relatively low home prices and high unemployment continue to exert upward pressure on delinquency rates, they are more than offset by the impact of more conservative lending policies reflecting consumers with higher credit scores,” says Tim Martin, group vice president of the U.S. Housing Market in TransUnion’s financial services business unit. “Not only are these consumers less likely to default if house prices continue to edge downward throughout the year, but their willingness to repay their debt obligations in the face of high unemployment rates is greater. It is because of these dynamics that lenders today take a much closer look at the borrower’s income history and overall debt situation than before the recession began in 2007.”

Between the first and second quarters of 2011, 49 states and the District of Columbia experienced declines in their mortgage delinquency rates with Vermont being the only state to experience an increase. On a more granular level, 79 percent of metropolitan areas saw declines in their mortgage delinquency rates in Q2 2011. This is an improvement compared to Q1 2011 when 68 percent of metropolitan statistical areas (MSA) experienced a decline their mortgage delinquency rates. In Q4 2010, only 44 percent of MSAs experienced such a decline.

TransUnion forecasts that mortgage borrower delinquency rates will continue to drift downward for the remainder of 2011, as economic conditions begin to slowly recover and tighter lending standards offset the impact of falling home prices.

“Mortgage delinquencies have shown six straight quarters of improvement and the pace of the improvement seems to be picking up speed. This is encouraging news. However, at their current level, nearly three times the pre-recession ‘norm,’ and the current pace of improvement, we may not see ‘normal’ delinquency rates until the end of 2015,” says Martin.

TransUnion’s forecast is based on various economic assumptions, such as gross state product, consumer sentiment, unemployment rates and real estate values. The forecast would change if there are unanticipated shocks to the economy affecting recovery in the housing market or if home prices fall more than expected.

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